Kerry Group plc

Good morning and welcome to Kerry's 2021 Full Year Results Update call. I'm joined in the call by our CEO, Edmund Scanlan, and our CFO, Marguerite Larkin. Edmund and Marguerite will take you through today's presentation and following this, we will open the lines for your questions. Before we begin, please note the usual disclaimer regarding forward-looking statements. I will now hand over to Edmund. Thanks, William.

Good morning, everyone, and thank you for joining our call. So beginning with slide four and my overview comments, and I would like to state that 2021 was an important year for Kerry. Firstly, on performance, we achieved strong overall growth with group volumes up 8% in the full year. In Q4, group volumes were up 7.6%, which underpinned double digit organic growth for the quarter. And what was particularly pleasing was this growth was broad based across our regions, our end use markets and our channels. In the retail channel, which has seen an increased demand over the past two years, we had volume growth of 5.4% in 2021 and growth of 7% in Q4. And this growth was driven by strong demand for functional food with clinical health benefits, plant based, taste without compromise and products with an improved sustainability impact. Then in the food service channel, which has been impacted by COVID, we delivered excellent overall volume growth of 18% in the year. And when you look back at this performance on a two-year basis, this represented a strong sequential improvement through the year. The 10% volume growth we achieved in the last quarter put us back above 2019 levels. And this is a significant milestone and testament to the hard work our teams have been doing with our customers over the last 18 months. Then from a strategic standpoint, in 2021, we made a number of important strategic developments as we continue to broaden and deepen our technology portfolio. We completed five acquisitions in the year, the most notable being Niocet, which enhances our position in food protection and preservation. and is also a strong compliment to our clean label preservation capabilities. I will explain in a little bit more detail later on on how each of these acquisitions we completed in 2021 and the acquisitions we've announced at the beginning of this year align with our overall strategic framework. The other notable portfolio development we had during the year was the sale of our consumer foods, meats and meals business, the Pilgrims Pride, which completed at the end of the third quarter. Then on footprint, we opened our new taste facility in Durban, South Africa in Q4, which is an important strategic step in our expansion within the continent. During the year, we also commenced production at our taste manufacturing plant in Arapato, Mexico, and at our new state of the art facility in Rome, Georgia, which will support us in meeting the increasing demand for integrated solutions across a variety of protein applications. And finally on strategy, We completed a comprehensive strategic planning refresh during the year, which we presented at our Capital Markets Day in October. And our strategic priorities, key growth platforms, mid-term financial targets, and sustainability commitments for the coming years give us a clear pathway of how we aim to achieve our vision, to be our customer's most valued partner, creating a world of sustainable nutrition. Now moving on to slide five and the taste and nutrition overview. Reported revenue for taste and nutrition was up 9% to 6.3 billion euro, driven by strong volume growth of 8.3% for the year and up 7.2% in the last quarter. And trading margin was 14.6% in the year, up 40 basis points overall. driven primarily by operating leverage, which Marguerite will take you through in a little bit more detail as part of the margin bridge analysis. Growth in the retail channel was very strong in beverage, meat, and bakery-induced markets in particular. The food service channel, as I just mentioned, had excellent growth with all three regions above 2019 levels in the last quarter. And likewise, our emerging markets growth of 14.4%, was well spread across all regions. Overall pricing for the year was 1.3%, with a step up in the last quarter to 2.9%, reflective of increases across our basket of raw materials. In our key growth platforms, growth was very strong in food waste through our food protection preservation portfolio, and in plant-based through new launches incorporating our radical range. We had good growth in authentic taste through launches in beverage with our new botanicals and taste sense ranges and growth in health and biopharma was led by the performance of our proactive nutrition technologies. Turning now to slide six and our end use market breakdown. As you can see from the chart on the right hand side, we had good growth across most of our markets. Firstly, in beverage, we had excellent performance across both the retail and food service channels, with overall growth of 14% driven by innovations in proactive nutrition, authentic taste, and plant-based. Within the food EUMs, we had strong growth in meat and bakery, supported by preservation technologies to reduce waste, while we had good growth in the dairy EUM through ice cream in particular. And in the farmer EUM, cell nutrition delivered good growth which was partially offset by weaker volumes in excipients due to temporary supply chain delays in the year now moving to the next slide number seven and our regional performance within taste nutrition starting first with the americas region we had reported revenue of 3.2 billion and overall volume growth of 6.7 percent despite the impact of supply chain and labor challenges across the industry Performance in North America retail was led by beverage, bakery, and meat end-use markets. And in food service, growth was led by QSRs and coffee chains. And we also delivered strong growth in Latam. And in Brazil, growth was led by beverage and ice cream, while growth in Mexico was led by snacks. Then in Europe, reported revenue increased to 1.6 billion, driven by volume growth of 9.9%. Growth in retail was led by meat, bakery, and dairy. And food service had excellent growth, particularly in the UK and Southern Europe, with an increase in out-of-home consumption, while Russia and Eastern Europe continued to deliver very strong growth. Then in apnea, reported revenue increased to 1.4 billion, with volume growth of 11.3%. And growth in retail was led by meat, beverage, and bakery, and overall food service growth was strong, despite some challenges in parts of the region throughout the year, most notably the restrictions in Southeast Asia. And finally, China and the Middle East delivered strong overall growth. Now turning to consumer foods on slide eight. As you're aware, there's been a significant change in consumer foods as a result of the sale of the meats and meals business at the end of Q3. Revenue for the division was 1.1 billion, reflecting the impact of the portfolio disposal. And we had strong overall volume growth in the year of 6% while recognizing lower prior year comparatives. Pricing in the year was 0.5% and trading margins were back in the division due to the portfolio divestment. Within the year, meats and meals performed very well and dairy delivered strong volume growth through the strings and things snacking range and spreadable butter ranges. And with that, I'll hand you over to Marguerite.

Thank you, Edmund, and good morning, everyone. We were pleased with our overall financial performance and progression in the year against the backdrop of a highly variable marketplace. So beginning on slide 10 and the financial overview for the year, Reported revenue increased to €7.4 billion, with the primary driver being volume growth of 8%. EBITDA of €1.1 billion represents an EBITDA margin of 14.7%. Trading profit of €876 million is reflective of reported growth of 9.8% and 40 basis points margin expansion. Adjusted earnings per share of €380.8 was up 12.1% in constant currency in the year. Return on capital employed increased to 9.9%, which includes a circa 30 basis points dilutive impact from the recent portfolio changes. And free cash flow was 566 million, representing 84% cash conversion. Turning to slide 11 and the group revenue analysis. Overall reported revenue increased by 5.7% in the year, which was primarily driven by strong organic growth, comprising volume growth of 8% and overall pricing of 1.2%. Translation currency had an adverse impact of 1.8% on revenue, driven primarily by currencies in the Americas. And on acquisitions and disposals, there was an overall decrease of 1.7% in the year. This includes a reduction of 3.5% from the disposal of the consumer foods, meats and meals business, partially offset by the contribution from acquisitions of 1.8%, including a strong three-month contribution from NIASET. Moving to slide 12 and the breakdown of revenue volume performance. On the left-hand side is overall group revenue by business, and on the right-hand side is Taste and Nutrition's quarterly volume performance by channel across the year. In the retail channel, which amounts to 74% of revenue, we've seen continued strength with growth above historical levels. And then within the food service channel, Performance across the year represents a combination of the impact of prior year comparisons and strong underlying improvement. We continued to outperform the market with growth of 10.1% in the fourth quarter and volumes above Q4 2019 levels as mentioned. Turning now to our group trading margin bridge. Overall, group profit was $876 million, with trading margins up 40 basis points in the year. Looking at the main drivers, firstly and most notably, we had an improvement of 60 basis points, driven principally by operating leverage, given the level of business volume growth versus the prior year. In addition, there was a positive portfolio mixed benefit, which was offset by supply chain on costs that relate to the management of supply disruption in North America in the second half of the year. Pricing was driven by the increase in raw materials, most notably in the last quarter. The overall 20 basis points reduction in margins was driven principally by the mathematical denominator impact of recovering the absolute increase in raw material input costs through pricing. Kerry Excel was a net 10 basis point dilution primarily relating to investments to drive growth in our key growth platforms. Foreign exchange was neutral from a margin perspective with acquisitions and disposals contributing to a net 10 basis points in the year. Moving next to free cash flow on slide 14. Overall, our free cash flow was $566 million, with cash conversion of 84%. Trading profit was up $79 million. Depreciation was in line with the prior year. Average working capital for the year was a net investment of $38 million, primarily due to revenue growth. On a point-to-point basis, we increased our investment in working capital with higher inventories at year-end due to strategic stock holding decisions, increases in raw material input costs in the current inflationary environment, and also managing through the short-term supply challenges, as we mentioned. And finally, net capital expenditure was 315 million, or 4.2% of revenue for the year, which was driven principally by the strategic capital development projects that Edmund mentioned earlier. Then moving now to our debt profile and credit metrics on slide 15. Net debt was 2.1 billion at year end. And as you can see here from the slide, our debt maturity profile is in very good shape with a weighted average maturity of 5.7 years. During the year when market conditions were favorable, we issued a new 750 million 10 years sustainability linked bond which is reflected in our year-end cash position. Our credit metrics at the end of the year remain strong, with a net debt to EBITDA ratio of two times and EBITDA to net interest of 14.9 times. Overall, we have a very strong balance sheet, which will continue to support our strategic growth initiative. Turning now to slide 16, I'd like to take a couple of moments to give you an update on our refreshed reporting segments for 2022, post the disposal of our consumer foods, meats and meals business, as we announced at our Capital Markets Day. On the left-hand side, you will see our 2021 reported revenue of 7.4 billion, based on our existing segments. And on the right hand side, you will see our pro forma revenue of 6.7 billion, excluding the meat and meals business revenue that has been disposed. From the 1st of January, our taste and nutrition segment will exclude dairy processing activities in Ireland, as this business has now been combined with the consumer foods dairy business to form Kerry Dairy Ireland. On a pro forma basis, the 2021 group revenue of 6.7 billion comprises 5.7 billion revenue in taste and nutrition, and 1.1 billion in Kerry Dairy Ireland. Additionally, with the completion of the Kerry Connect programme, we will include the current centrally held information technology costs within the relevant business segments. So reflecting these changes, the 2021 pro forma EBITDA margin for taste and nutrition would have been 17.7% and 6.3% for Kerry Dairy Ireland. We have included a number of supplementary slides with further financial analysis in the appendix for modeling purposes. Finally, to cover off a number of other financial matters on slide 17, On Kerry Connect, we continued our deployment through the year in North America, and the overall programme is scheduled to complete in the first half of 2022. On non-trading items, there were a number of moving parts. We had a gain on the disposal of the consumer foods, meats and meals business of over 200 million, which was partially offset by investment in Kerry Global Business Services and acquisition integration and other costs. resulting in a net overall credit of 134 million. On the Accelerate Operational Excellence, as we outlined at our Capital Markets Day, our programme will commence in 2022 and run until 2024. We are commencing the manufacturing excellence deployment across over 30 manufacturing operations this year. These are facilities of scale and the focus will be on optimising and re-engineering manufacturing processes at these facilities, enabled by digitalisation and automation. This will be key to facilitating the subsequent relocation of manufacturing across our asset footprint. The programme will result in improved group margins over the course of the plan, with the net overall investment of 120 million, as previously noted. delivering a recurring annual benefit of 70 million per annum by 2025. The majority of this investment will be in the next couple of years, with an expected spend of circa 50 million in 2022, which we will update you on as the year progresses. On raw materials, we have seen significant cost inflation as we move through the second half of 2021, resulting in raw material cost inflation of circa 5% in the fourth quarter. We currently expect mid to high single-digit raw material cost inflation for the first half of 2022, with significant variability across our basket of raw materials. We will continue to use our well-established pricing model to manage the recovery of these raw material cost increases. On dividends, we are proposing a final dividend of 66.7 cents per share, which represents a 10% growth rate. And on currency, the translation headwind on adjusted earnings per share in 2021 was 1.9%, and we are currently estimating a translation currency tailwind of circa 3% on adjusted earnings per share for 2022. To summarise, before I hand you back to Edmund, I'm pleased to say we delivered a strong overall financial performance in the year, especially given the current volatility in the marketplace. And with that, I'll hand you back to Edmund for the outlook and future prospects.